Posted on 01. Sep, 2013 by AOA of California, INC.
Multi-Family Dwelling Owners to Benefit the Most!
For the first time in history, solar hot water systems (SHW) will pay for themselves in one to three years! This is due to simultaneous incentives now being offered by the state of California and the Federal government. This “perfect storm” of incentives has aligned to make this the most profitable time for businesses and apartment owners to invest in solar hot water systems.
Something like this happened once before in the late 70’s through 1985 sparked by the “Arab Oil Embargo,” with thousands of commercial hot water systems installed (many of which are still operating today). However, under the new program, systems must be even sturdier and longer lasting, having to meet a long list of quality criteria including being freeze-proof and protected from over-heating. Solar thermal systems (SHW) are quite different from solar electric systems (PV). Among other things SHW systems are based on an older mature technology and capture 3 to 4 times more energy per square foot! There will never be a “breakthrough” in SHW as its’ design is as simple and efficient as “the wheel”. We still use the same wheel design as was used thousands of years ago. In the case of solar thermal, little has changed since it started being used in the early 1900’s.
Simply put, a solar thermal system is black material under glass which absorbs the energy from the sun…and if you run water through it, the water gets very hot. Since the technology won’t change, the only things which drive up the cost of an installed SHW system are the ever-increasing price of copper, aluminum and labor.
So let’s take a look at how the economics of this “perfect storm” of incentives works. First, the Gas Company, through the California Solar Initiative (CSI), pays an average of 50% to 60% of the total cost (received within 30 days of completion). Then the IRS pays you back another 30% as a tax credit, even toward AMT (Alternative Minimum Tax). Finally, bonus depreciation lets you write half of it off in 2013, with the other half depreciated over the next five years.
Bottom line: The average cash customer can get around 85% of the cost back in year one, with profit by year two or three. Financed systems are usually cash positive from DAY ONE! Those who might not benefit from tax credits and depreciation can also profit from SHW. They may want to consider a system which can be leased, installed and owned by a third party who utilizes the incentives, with you, the building owner, still benefitting from a less expensive source of hot water than you were previously paying.
EXAMPLE: 74 Unit Apartment, Cash Purchase, 35% Income Tax Bracket
Initial Solar Hot Water System Cost $115,000.
Less CSI Rebate (after paying
35% income tax on it) - $40,366.
Less Federal Tax Credit 30% - $34,500.
Less First Year Bonus Depreciation
VALUE (35% bracket) - $20,527.
Less First Year Gas Savings - $4,565.
NET FIRST YEAR COST: $15,042.
COMPLETE RETURN ON INVESTMENT IN 2.5 YEARS 10 YEAR PROFIT = OVER $54,000
As is often the case, there is an economy of scale, with larger systems experiencing the fastest profitability. My company, for example, is currently installing a 287 unit apartment system that will have complete ROI in year one, whereas a smaller 10 unit building may take 4 to 5 years. And, if you happen to have one of those older 20th Century SHW systems at or near its end of life, the program allows for major refurbishment at the same rebate, resulting in a one year full payback!
But in order to reap these benefits, the first step is to find a competent solar thermal contractor. Nine out of ten Internet search results will yield solar electric contractors who know little to nothing about solar thermal…but they may be hungry for business, so beware!
The CSI Thermal website (www.csithermal.com) has a map showing all the rebated projects in your area and the company that installed each. Those companies may be looked up on the CA State License Board website ( www.cslb.ca.gov) to ascertain their experience, specialty and whether there are any active complaints against them.
You should look for a company with a C46 license (solar) with at least 15 years of experience, not just a C10 (electrical), C36 (plumbing), C39 (roofing), or B (general). Keep in mind, however, that the C46 (solar) license encompasses both thermal and electric solar disciplines, and most are masters of one or the other…not usually both. Therefore, when hiring a company to install your SHW system, ask for a list of at least ten Thermal multi-family installation references and contact at least three! Additional Tip: the six digit CA State License number is sequential from date of licensing, so the lower the number the longer the experience.
SHW systems are very common throughout the world wherever conventional fuels are expensive, scarce, or discouraged (e.g. Hawaii, Australia, Japan, Israel, Germany, etc.). In the U.S. our government has given fossil fuels tremendous tax incentives for over 100 years and continues to do so. But finally the recognition of the importance of solar energy is resulting in terrific incentives as well.
This opportunity should not be missed by owners of apartment buildings and businesses which use hot water. However, as with most rebate programs, the proportion paid out towards installations will decrease as chunks of funding are used up. This CSI Thermal program is still in its first of four phases, so it’s important to reserve your rebate it while you still can! Apartment and business owners who don’t will continue being a “renter” themselves, renting natural gas monthly with nothing to show for it except a bigger bill next month.
Ted Bavin is the owner and CEO of All Valley Solar, Inc., and is the author of the soon to be published book, “What to Know Before You Buy Solar: 10 Tips for Maximizing Your Investment”. He has been designing and installing solar hot water systems for 36 years and is the authority on advanced drainback technologies. Ted’s company serves all of Los Angeles, Ventura, Orange County, and much of the Inland Empire. For questions or more information feel free to contact email@example.com or 800-400-7780.